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Bond Traders Shrug Off Massive Debt Auctions

Reuters

By Michael Rainey

October 23, 2018

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The U.S. Treasury is issuing $276 billion in debt this week as the deficit continues to soar in the wake of the tax cuts and higher government spending this year, with some specific bills and notes being offered at levels not seen since the Great Recession. “The $38 billion two-year auction, $39 billion five-year offering and $31 billion seven-year sale are each the biggest for those maturities since mid-2010,” says Bloomberg’s Brian Chappatta.

At the same time, bond traders, who were expressing concerns about the ballooning size of the debt auctions just a few months ago, seem to be taking the new auctions in stride. “Maybe the sticker shock of some of these figures has just worn off,” Chappatta writes.

That’s not to say, though, that the enormous debt auctions aren’t causing any ripples in the market. The number of bids is slipping, reflecting weaker demand. But weaker demand is still a long way from failure, Chappatta says, and the bid-to-cover ratio, though lower, is still well above levels seen during far more dire circumstances in 2008.

In a note Monday, Ian Lyngen of BMO Capital Markets wrote, “Despite ballooning borrowing, we have not seen any serious case of supply indigestion thus far. That widely held fear in the beginning of the year has been quelled by headline results that have been nothing if not decent — a trend we expect to continue.”